CASE DIGEST # 1 - PAGCOR vs PHILIPPINE GAMING JURISDICTION INCORPORATED

Facts:

Zamboanga City Special Economic Zone (ZAMBOECOZONE) and the ZAMBOECOZONE Authority which was created by virtue of RA 7903 have, among other things, the following power under Section7 (f) viz:

(f) To operate on its own, either directly or through a subsidiary entity, or license, tourism-related activities, including games, amusements and recreational and sports facilities;

In the exercise of its power ZAMBOECOZONE Authority passed a resolution approving the application of PEJI to be a Master Licensor/Regulator of on-line/internet/electronic gaming/games of chance. PEJI undertook extensive advertising campaigns representing itself as such licensor/regulator to the international business and gaming community, drawing the PAGCOR to file a petition for Prohibition which assails the authority of the ZAMBOECOZONE Authority to operate, license, or regulate the operation of game of chance in the ZAMBOECOZONE.

PAGCOR contends that RA 7093 does not categorically empower the ZAMBOECOZONE Authority to operate, license, or authorize entities to operate games of chance in the area, as the words “games” and “amusement” employed therein do not include “games of chance”. Hence, PAGCOR concludes, ZAMBOECOZONE Authority’s grant of license to PEJI encroached on its authority under PD 1869 to centralize and regulate all games of chance.

ZAMBOECOZONE Authority counters that the words “games” and “amusement” in Section 7 (f) of RA No 7903 include “games of chance” as it was intention of the lawmakers when they enacted the law.

Issue:

Whether or not RA No 7903 authorize ZAMBOECOZONE Authority to operate and/ or license games of chance or gambling.

Held:

No, RA 7903 does not authorize the ZAMBOECOZONE Authority to operate and/or license games of chance/gambling.

It is a well settled rule in statutory construction that where the words of a statute are clear, plain, and free from ambiguity, it must be given its literal meaning and applied without attempted interpretation. The plain meaning rule or verbal legis rests on the valid presumption that the words employed by the legislature in a statute correctly express its intention or will, and preclude the court from construing it differently.

The words “game” and “amusement” have definite and unambiguous meanings in law which are clearly different from “game of chance” or “gambling”. In its ordinary sense, a “game” is a sport, pastime or contest; while an “amusement” is a pleasurable occupation of senses, diversion, or enjoyment. On the other hand, a “game of chance” is “a game in which chance rather than skill determines the outcome”, while “gambling” is defined as “making a bet” or “a play for value against an uncertain event in hope of gaining something of value”.

The spirit and reason of the statute may be passed upon where a literal meaning would lead to absurdity, contradiction, injustice, or defeat the clear purpose of the lawmakers. Using the literal meanings of “games” and “amusement” to exclude “games of chance” and “gambling” does not lead to absurdity, contradiction, or injustice. Neither does it defeat the intent of the legislators. The lawmakers could have easily employed the words “games of chance” and “gambling” if they had intended to grant the power to operate the same to the ZAMBOECOZONE Authority.

WHEREFORE, the petition is GRANTED. Public respondent ZAMBOECOZONE Authority is DIRECTED to CEASE and DESIST from exercising jurisdiction to operate, license, or otherwise authorize and regulate the operation of any games of chance. And private respondent PEJI is DIRECTED to CEASE and DESIST from operating any games of chance pursuant to the license granted to it by public respondent.

CASE DIGEST # 2 – CIR vs TMX SALES, INC

Facts:

TMX Sales, Inc a domestic corporation filed its quarterly income tax return for the first quarter of 1981 and paid P247, 010.00 on May 15, 1981, however during the subsequent quarters, TMX Sales suffered losses and declared in its Annual Income Tax Return filed on April 15, 1982 a net loss.

TMX thru its external auditor, SGV & Co. filed a claim with the Appellate Division of the BIR for refund in the amount of P247, 010 representing overpaid income tax. The Commissioner of Internal Revenue averred that “granting, without admitting, the amount in question is refundable, the petitioner TMX Sales, Inc is already barred by prescription from claiming the same considering that more than two years had already elapsed between the payment date (May 15, 1981) and the filing of the claim in Court (March 14, 1984).

Thereafter, TMX filed a petition for review before the Court of Tax Appeal praying that the petitioner, as private respondent, be ordered to refund to TMX Sales the amount in question. The CTA rendered a decision granting the petition of TMX and ordering the Commissioner of Internal Revenue to refund the amount claimed. Part of the CTA’s decision says:

“When a tax is paid in installments, the prescriptive period of two years provided in Section 292 of the Revenue Code should be counted from the date of the final payment or last installment. This rule proceeds from the theory that in contemplation of tax laws, there is no payment until the whole or entire tax liability is completely paid. Thus, a payment of a part or portion thereof cannot operate to start the commencement of the statute of limitations.”

Issue:

Whether or not TMX Sales, Inc is barred by prescription from claiming a refund of erroneously collected tax.

Held:

No, TMX Sales, Inc is not yet barred by prescription.

Section 292 (now Section 230) of the National Internal Revenue Code which provides a two-year prescriptive period to file a suit for a refund of a tax erroneously or illegally paid, counted from the time the tax was paid should be interpreted in relation to other provisions of the Tax Code in order to give effect to legislative intent and to avoid an application of the law which may lead to inconvenience and absurdity. It is necessary that we consider not only Section 292 (now Section 230) of the NIRC but also the other provisions of the Tax Code. All these provisions of the Tax Code should be harmonized with each other for the reason that a literal application of this provision in the case which involves quarterly income tax payments may lead to absurdity and inconvenience. The most reasonable and logical application of the law would be to compute the two-year prescriptive period at the time of filing the Final Adjustment Return or the Annual Income Tax Return, when it can be finally ascertained if the taxpayer has still to pay additional income tax or if he is entitled to a refund of overpaid income tax.

Therefore, the filing of quarterly income tax returns required in Section 85 (now Section 68) and implemented per BIR Form 1702-Q and payment of quarterly income tax should only be considered mere installments of the annual tax due. These quarterly tax payments which are computed based on the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year. This is reinforced by Section 87 (now Section 69) which provides for the filing of adjustment returns and final payment of income tax. Consequently, the two-year prescriptive period provided in Section 292 (now Section 230) of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax.

In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the two-year prescriptive period should be counted from the filing of the Adjustment Return on April 15, 1982, TMX Sales, Inc. is not yet barred by prescription.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DENIED. The decision of the Court of Tax Appeals dated April 29, 1988 is AFFIRMED. No costs.

CASE DIGEST # 3 – SPMC vs CIR

Facts:

SPMC is a domestic corporation engaged in the business of milling, manufacturing and exporting of coconut oil and other allied products. It was assessed and ordered to pay by the Commissioner of Internal Revenue the total amount of P8, 182,182.85 representing deficiency miller’s tax and manufacturer’s sales tax, among other deficiency taxes, for taxable year 1987. The deficiency miller’s tax was imposed on SPMC’s sales of crude oil to United Coconut Chemicals, Inc. (UNICHEM) while the deficiency sales tax was applied on its sales of corn and edible oil as manufactured products. 

SPMC opposed the assessments but the Commissioner denied its protest. It insists on the liberal application of the rules because, on the merits of the petition, SPMC was not liable for the 3% miller’s tax. It maintains that the crude oil which it sold to UNICHEM was actually exported by UNICHEM as an ingredient of fatty acid and glycerin, hence, not subject to miller’s tax pursuant to Section 168 of the 1987 Tax Code. For SPMC, the said provision contemplates two exemptions from the miller’s tax: (a) the milled products in their original state were actually exported by the miller himself or by another person, and (b) the milled products sold by the miller were actually exported as an ingredient or part of any manufactured article by the buyer or manufacturer of the milled products . The exportation may be effected by the miller himself or by the buyer or manufacturer of the milled products. Since UNICHEM, the buyer of SPMC’s milled products, subsequently exported said products, SPMC should be exempted from the miller’s tax.

SPMC appealed the denial of its protest to the Court of Tax Appeals (CTA) by way of a petition for review. In its decision, the CTA cancelled SPMC’s liability for deficiency manufacturer’s tax on the sales of corn and edible oils but upheld the Commissioner’s assessment for the deficiency miller’s tax. Thereafter, elevated the case to the Court of Appeals via a petition for review of the CTA decision insofar as it upheld the deficiency miller’s tax assessment but it was dismissed.

Issue:

Whether or not SPMC’s sale of crude coconut oil to UNICHEM is subject to the 3% miller’s tax

Held: